[FDArchitects]

This study commissioned by the National Institute of Urban Affairs (NIUA) under the United States Agency for International Development - Financial Institutional Reform  Expansion (USAID-FIRE) project aims to address the following debt financing issues  at the level of municipal corporations in India. Some of these issues are: the legal and  statutory frameworks within which municipal corporations are allowed to borrow from  the market; the role of debt financing in capital expenditure; fiscal health and gross  fiscal deficit; the structure and form of debt borrowing, debt servicing profile, debt  servicing capacities, fiscal impact of debt servicing; and the fiscal and financial 
management issues involved in debt management.

The National Institute of Public Finance and Policy (NIPFP) decided to undertake a pilot study of municipal debt financing in 12 municipal corporations of the country, namely: Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Bangalore, Lucknow, Jaipur, Bhopal, Ludhiana, Vadodra, and Trivandrum with a view to gain an initial understanding of the issues concerning the subject of municipal debt. The study was accordingly designed to probe into such basic questions as: what is the extent to which debt as an instrument is used for financing infrastructure? What is the use to which debts have been generally put? What are the sources of debts? What is the impact of such debts on the revenue budget of municipalities?

Municipal debt can be  government loans, market loans (open market and loans from financial institutions), interest bearing internal loans and external 
(World Bank) borrowing.

Municipal Debt Financing in India - NIPFP

[FDArchitects]

Objectives of the study of


♦ What are the major conceptual issues involved in municipal debt financing in India?
♦ What are the legal and statutory frameworks within which municipal  corporations are allowed to raise loans? Are these legal arrangements and practices the same across municipal corporations?
♦ Is the practice of debt financing widespread among municipal corporations?
♦ Does the fiscal health of corporations influence their debt profile?
♦ Is there any evidence for municipal debt stress, if so, how does it manifest itself across corporations with varied sizes and resource capacities?
♦ Do these corporations have additional debt servicing capacities?
♦ What are the issues involved in the enhancement of debt carrying capacity of  municipal corporations?

Municipal Debt Financing in India - NIPFP

[FDArchitects]

A better understanding of the debt profile requires a detailed analysis of municipal
finance, municipal asset and liabilities, fiscal stress and debt burdens and debt
servicing capacities of municipal corporations. A large number of ratios and indicators
are used to understand the debt financing and debt servicing profile and capacities of
the municipal corporations.
The questionnaire used for primary data collection is structured mainly into four parts;
• profile of municipal finance
• detailed information on the loans and market borrowing undertaken by the
municipal corporations, terms of loans, loan utilization performance, role of
debt in capital investment, loan repayment structures, etc.,
• fiscal health indicators of the municipalities to capture the debt servicing
capacities, and
• lastly a few qualitative questions to the decision makers to capture their
insight on the financing mechanism, fiscal decentralization process and
rationalization of revenue and expenditure authorities, etc.